What is the process to settle an SBI Business Loan?

Summary

SBI Business Loan Settlement is a concession to the borrower in the event of default of repayment of the business loan in the event of financial hardship. In this scheme, the bank permits the borrower to settle the loan by paying less than the total outstanding amount. This is generally accomplished through a One-Time Settlement (OTS) policy under which the borrower settles an amount in lump sum to settle the loan.

Loan settlement is, however, different from loan closure. To get an SBI Business Loan Settlement, the borrower should visit the bank, request for settlement, present evidence of financial difficulties, and agree on the amount of settlement. The case is examined by the bank before granting the sanction of settlement. When the offer is accepted by the borrower, he has to pay the amount within the period provided. While paying, it is advisable to get a No Dues Certificate (NOC) as the settlement proof.

Before opting for a loan settlement, the borrowers should attempt alternatives like loan restructuring, reducing EMI, balance transfer, or seeking government financial aid to avoid a negative credit impact. Loan settlement should be considered at a juncture when it has no alternative. Borrowers may also approach SBI and negotiate to receive a favorable settlement.

Introduction

It requires money to do business, and businessmen sometimes take loans to finance expenses, put in place expansion strategies, or invest in emerging opportunities. The State Bank of India (SBI) is among the leading banks that provide business loans to entrepreneurs, small-scale industries, and start-ups. Repayment of a business loan at times becomes challenging because of financial troubles, market conditions, or unexpected losses.

Loan settlement is when the borrower and bank agree to settle the loan by paying a smaller amount than the amount due. It typically occurs when the borrower cannot repay the loan because of financial problems. SBI, like all banks, offers settlement facilities on specific terms. A loan settlement will ease the burden but has some disadvantages, like a negative effect on the CIBIL score that will dilute future borrowing capacity.

To settle an SBI Business Loan Settlement, the client must first make contact with the bank and establish their financial woes. The case will then be assessed by the bank, with a one-time settlement (OTS) where they pay a one-time sum to settle the loan. The process is via negotiation, paperwork, and the authorization of the bank. Attention needs to be paid to knowing all conditions and terms before executing the settlement.

In this article, we will talk about the step-by-step process of settling an SBI Business Loan Settlement, the eligibility criteria, the effect on the credit score, and the loan settlement options. With these facts, business owners will be able to make a decision and know the best possible method of handling their financial obligations.

What is an SBI Business Loan Settlement?

An SBI Business Loan Settlement is a process by which the State Bank of India (SBI) provides a borrower with a chance to repay their business loan by paying an amount less than the total outstanding amount. This generally happens when the borrower is cash-strapped and is unable to repay the loan, say, due to business losses, cash flow problems, or unexpected market conditions.

In a loan settlement, the bank and the borrower are involved in a transaction whereby the bank is compensated with a one-time sum (also called One-Time Settlement or OTS) to bring down the loan. The paid-up amount is smaller than the total outstanding amount of the loan, easing the borrower from the burden of money. Loan settlement differs from loan closure in the fact that loan settlement negatively affects the CIBIL score and reduces the scope for future loans.

How does an SBI Business Loan Settlement work?

An SBI Loan Settlement is achieved by a negotiation process between the bank and the borrower. If a businessman is facing difficulties in repaying his loan due to a financial crisis, he can go to SBI with a request for a settlement. The bank will analyze the financial condition of the borrower and determine if he is worthy of a One-Time Settlement (OTS).

If sanctioned, the bank provides a lower amount that is to be paid by the borrower in lump sums to settle the loan. It is typically lesser than the outstanding loan but is to be repaid within a stipulated time. When paid, the bank settles the loan as “settled” rather than “closed.”

What is the difference between a personal loan Settlement and a Credit Card Loan Settlement?

Let us understand both of these in detail:

• Personal Loan Settlement: 

In this, the borrower negotiates with his bank so that some part of the total loan amount can be waived off. This means that the borrower has to pay less than his original borrowing. This process is adopted when the borrower is unable to repay the entire loan amount and tries to settle with the bank.

• Credit Card Loan Settlement: 

Credit Card Loan Settlement is a process through which you can reduce your credit card dues by negotiating with the bank or credit card provider. When you are unable to pay the entire outstanding amount of your credit card and your financial situation becomes critical, the bank or credit card company agrees with you. In this, you are given a chance to end your liability by paying a certain percentage of the principal amount.

Are there any other options apart from an SBI Business Loan Settlement?

If you do not like the option of an SBI Loan Settlement, then you can also consider some other options, such as:

• Loan Rescheduling: In this, the bank reschedules the loan of the borrower, which makes it easier for the borrower to pay his installments. Under this, the monthly installments of the borrower are reduced, but the loan period is increased.

• Loan Refinancing: In this, the borrower repays the old loan by taking a new loan. This new loan is usually at a lower interest rate, which reduces the monthly installments of the borrower.

• Consolidation Loan: In this, the borrower combines all his small loans into a big loan and pays it in a single installment. This makes it easier for him to manage the loan, and the interest rate can also be reduced.

How does an SBI Business Loan Settlement affect your credit score?

The impact can be seen in the following ways:

• After an SBI Business Loan Settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors feel that you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

• When you settle for an SBI Business Loan Settlement with your bank, you are not paying off the entire loan but paying a certain amount that is less than the principal amount. This is seen negatively by the credit bureaus as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

• After the SBI Loan Settlement process, your credit report will be entered with the information that you have “settled” your loan. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

• Since an SBI Business Loan Settlement means that you have not repaid the entire loan, when you try to get a new loan in the future, banks may look at your credit score and report and reject your application or give you a loan at higher interest rates.

What are the advantages and disadvantages of SBI Business Loan Settlements?

If you’re struggling to pay back the SBI business loan, settling the loan seems to be a possible option. But then again, as with anything else, it has two sides to its coin. Following are the positive and negative points about it:

Advantages (Pros)

• It allows you to pay less than the due amount of the loan for repayment

• If you are not in a position to pay, the bank will go to court or send recovery agents. Loan settlement avoids this kind of occurrence.

• Instead of long-term financial stress, a settlement allows you to repay the loan quickly with a single payment (OTS – One-Time Settlement).

• Loan stress may be stressful for business persons. A settlement brings relief and allows you to focus on the re-growth of business.

Disadvantages (Cons) 

• Loan settlement is marked as “Settled” instead of “Closed”, which lowers your CIBIL score and impacts your ability to obtain further loans.

• Banks can identify you as a bad borrower and refuse future loan applications.

• Though the amount is smaller, you need to remit the settled amount in one go, which may be difficult.

• Unless you negotiate strongly, the bank is not going to approve your request for settlement or move for recovery. SBI won’t settle easily. You need to demonstrate serious financial hardship to be qualified.

How do I apply for an SBI Business Loan Settlement online?

If you want to apply it online, then follow the easy steps given below:

Visit the bank’s website or app

• Open the official website or mobile app of your loan provider or bank.

• Sign up if you already have an account, then log in. Otherwise, create a new account.

Check the customer support section

• Go to the ‘Customer Support’ or ‘Contact Us’ section on the website or app.
• Here, you can find the option related to “Loan Settlement”, such as:
• Filing a loan-related complaint.
• Request form for loan settlement.

Fill out the request form for the settlement

• Select the “Loan Settlement Request” option.
• Fill in the required details, such as:
• Your name
• Loan account number
• Email ID and mobile number
• Reason (why you want to settle, such as financial problems or reduction in income).

Upload the required document

• Upload documents that show your current financial situation, such as:
• Income certificate or salary slip
• Bank statement
• Any other proof that explains your problem.
• Upload all the documents by scanning them in the correct format (PDF or JPEG).

Submit and wait for the bank’s response

• Once you have submitted the form, the bank will verify your request.

• The bank will most likely contact you within 7-10 working days. They will notify you of the settlement through email, call, or message.

Read the bank’s offer

• The bank will make an offer to waive some portion of your pending amount. Carefully read it.

• If you accept the offer, go ahead. Otherwise, bargain further.

Make payment

• Pay the decided settlement amount from the bank in online payment mode.

• The bank will provide a payment confirmation and close your loan account.

Conclusion

SBI Business Loan settlement can be a great solution for the borrower who is under pressure due to a financial crisis. It assists you in settling the loan by paying less money, which can provide immediate relief from the financial pressure. But note that a loan settlement differs from paying off the full loan. Although it gets you out of debt burden and court proceedings, it will negatively affect your CIBIL score, thus making it challenging to secure loans in the future.

It is always advisable to explore other options like loan restructuring, reduction of EMI, balance transfer, or availing the government’s financial support before paying a loan. These options allow you to service your loan without impacting your credit score. Settlement is the last resort, therefore, you have to negotiate well with the bank to negotiate the best and ensure you receive a No Dues Certificate (NOC) upon final payment.

One can apply for an SBI Business Loan Settlement online by making a call to the bank, filing a settlement application, presenting financial documents, and crediting the settled amount within a specified period. As settlement affects your future finances, always seek the advice of a finance expert before taking a final call.

Frequently Asked Questions (FAQ’s)